Markets have been fighting a battle for the past week, if not longer. And judging by the strong open this morning, we have a clear winner.
On one side we have coronavirus news that is as bad as it’s been since the spring. Hospitals in the Midwest are running out of beds, infections are soaring there and on the coasts. New York just announced that it will now require a negative Covid-19 test before allowing out-of-staters in, followed by a three-day quarantine and then another negative test. Hard to enforce, and sounds a bit like another lockdown.
In Europe, countries including the UK, France, Germany, Ireland, Italy, Belgium, Austria, Spain, and Portugal have or are about to go into another round of partial lockdowns, or something similar. Add to that the uncertainty about tomorrow’s U.S. election, and you can see why investors and traders might be skittish.
And yet markets are going up this morning. That’s because on the other side of this battle is a foe that has proven its strength over and over again this year.
I’m talking, of course, about the day-to-day fear of missing out, or FOMO.
This FOMO is at least partially driven by all the extra savings that have amassed out there, and the other impacts of all that monetary and fiscal stimulus. For most of the year, those lucky enough to still have money and jobs have had little to spend that money on. Events have been cancelled, trips largely impossible, eating out limited. So the money adds up in savings accounts. But with interest rates at rock bottom, those savings accounts pay almost nothing. It’s the same with bonds. So eventually, at least a good portion of those savings will end up in the stock market, where money can earn some return.
Of course, last week’s dip is all the business news is talking about. What’s really been hitting the headlines is that five Big Tech companies reported earnings, and Apple Inc. (AAPL), Amazon.com Inc. (AMZN), Facebook Inc. (FB), as well as Microsoft Corp. (MSFT) shares all fell.
The Reality Gap is that these four companies actually reported really good earnings. All of them beat expectations, and showed growth compared to the same quarter last year. But the business media focused not on that, but on their stocks going down.
Of course, markets as a whole were pulling back, so this had little to do with Big Tech’s earnings. Remember too that last quarter’s numbers were so amazing, it was never going to be easy to go up from there.
It’s like having a baseball team hit three home runs in one inning, and then being disappointed that the next inning they can’t get four.
Even so, it’s a new week and FOMO has now taken over. That’s despite the coronavirus news and the election uncertainty. As we talked about last week, a contested election, in which it takes a while for a winner to be decided, is now almost priced in. Despite this, investors are piling in because they don’t want to miss out on what may be the next big leg up in this rally.
The election will be the main event of this week, of course, but there are also some important earnings to keep an eye on.
First, my two favorite names in the payments space report this week. Paypal Holdings Inc. (PYPL) reports today after the close and Square Inc. (SQ) on Thursday after the close. They are both great companies, and each focus on a different demographic. PayPal is stronger with individuals, while Square serves more small businesses. Together, they will give us some important insights into U.S. consumer behavior. And after Visa Inc.’s (V) disappointing report last week, my bet is that the smaller and nimbler PayPal and Square will do better.
Qualcomm Inc. (QCOM), reporting on Wednesday after the close, will be very interesting to watch, as the semiconductor space has so far sent mixed signals. Intel Corp. (INTC) reported a huge miss and fell, NXP Semiconductors NV (NXPI) had a good report and went up, while AMD Inc. (AMD) gave good numbers but fell on disappointing guidance. It’s up to Qualcomm to break the tie.
On Thursday morning, Alibaba Group Holding Ltd. (BABA) will report its earnings. This is thought to be a “Biden stock,” meaning one that will benefit from the less aggressive stance on China that Biden is likely to take should he win tomorrow. Given that, the stock may already be up by Thursday if Biden wins or down if it’s a Trump victory. But in any event, Alibaba is a buy on any pullback for the foreseeable future.
Finally, Uber Technologies Inc. (UBER) reports its latest earnings on Thursday afternoon. The focus here won’t be the numbers, unless the company’s UberEats food delivery business manages to score a big upside surprise. Instead, traders will be looking for any more insight on the company’s struggles with classifying its drivers as contractors, vs. California’s requirement that they be treated as employees.
Great trading, stay safe out there and God bless you,
D.R. Barton, Jr.